LAGOS — The 2016 national budget just signed into law by President Muhammadu Buhari may have started suffering a major cash flow set back from oil revenue as prices shed $5 per barrel as at last weekend while output dropped further due to Chevron facility bombing just before the budget was signed, Friday.



The Federal Government had based the budgeted revenue on oil production of 2.2 million barrel per day but oil industry reports, last weekend, after the second attack on oil installations, indicated that output would be around 1.6 mbpd or even less.

Also, the budgeted oil price benchmark of $38 per barrel came with expectation that in the event of production shortfall, which had been consistent since this year, a premium of at least 20 per cent on the price benchmark which gives about $45.6 per barrel, would make up for the losses arising from output shortfalls.

But oil price receded to $41 per barrel, or less than 10 per cent premium on budgeted price benchmark as against $46.1 per barrel peak recorded in the previous week.

With the twin developments in the oil sector, the Federal Government is now losing about $8 million per day on oil price reversal, while production slump has resulted in a revenue loss to the tune of about $22.8 million per day.

The total loss from date to year end on annualized budgetary provisions would be $7.16 billion or about N1.4 trillion, if the oil price fails to rebound sometime down the year and production level remains depressed.

Losses wipe out 80% of budgeted CAPEX

The N1.4 trillion revenue shortfall would wipe out about 80 per cent of the total N1.8 trillion earmarked for capital expenditure, CAPEX, in the budget, thereby rendering the reflationary thrust of the budget ineffective from the on-set.

On the possibility of oil price upwards swing, the International Monetary Fund, IMF, last week said the average price for the year would be $41, with occasional downward and upward swings, meaning that the losses to price reversal would likely remain.

Also on the future of production level recovery, various factors that have combined to depress output to less than the budgeted 2.2 million barrel per day, such as joint venture hitches as well as militancy, appear to be on the increase rather than being eliminated.

Latest data from April Monthly Oil Market Report, MOMR, of the Organisation of Petroleum Exporting Countries, OPEC, showed that Nigeria’s crude oil production fell by 67,000 bpd in March from 1.744mbpd to 1.677mbpd, with Nigerian industry experts saying that April did not do better, while last week’s attack on Chevron brought down output to about 1.637mbpd.

With the defiant posturing of the militants and threats of further attacks, it appears the output challenges may even get worse, especially as the Nigerian security agencies appeared too weak to arrest the situation.

Already, reports indicate that other major oil producers such as Shell and Mobil may have started plans to shut-in production locations in volatile areas, following the threats.

Apparently aware of the implications of these sudden developments last weekend while signing the budget, President Buhari said: “We are working night and day to diversify the economy so that we never again have to rely on one commodity to survive as a country.”

Also, the budgeted oil price benchmark of $38 per barrel came with expectation that in the event of production shortfall, which had been consistent since this year, a premium of at least 20 per cent on the price benchmark which gives about $45.6 per barrel, would make up for the losses arising from output shortfalls.

But oil price receded to $41 per barrel, or less than 10 per cent premium on budgeted price benchmark as against $46.1 per barrel peak recorded in the previous week.

For instance, if there is a decline in oil prices and oil revenue, the lagging and collapsing non-oil export sector will not be able to compensate for the drop in oil revenue while domestic demand for the non-traded goods and imports remain sticky. Consequently, the country will be forced to borrow from the international financial market to compensate for the decline in oil revenue. Over time, external debts will increase and so will the debt service obligations. Even when oil prices go up later and there is another round of oil windfall, it is difficult to correct the earlier damage or distortions created by the initial or previous oil windfall. In some cases, the oil exporting country may be forced to adopt some form of structural adjustment program (SAP) to correct such distortions or imbalances. Some of these SAPs are painful and may increase the prevalence, depth and severity of poverty(Sauce)

ridwanayo:
Bubu should nt deal with this issue with force,he should learn from obasanjo nd try to negitiate,that's what makes a wise president nt force every time

hucienda:
These guys are fighting an ideological battle.. which is a difficult one to fight- and in this case a delicate one as it hampers the country's major source of revenue. Had it been we had other sustainable revenue sources, the state would've been able to call their bluff... but they know, as much as everyone knows, that the country depends on petroleum proceeds to function- hence their sabotage.

These avengers are what I'd call 'Ivy League Militants' cos their modus operandi (they got online presence) and sophistication of their attacks sends shiver down the spine. Only God knows what they plan next. I do hope the FG and the Avengers come to an amicable resolution.

osabuohein:
I'm from Edo and I'm in full support of the NDA. Let's see how the military will win this battle. No more free oil for hausa/fulani and their yoruba counterparts. These people are choking us in this country. Their demands are quite simple. PMB should negotiate with them or better still simply divide the rotten country.

wastedsperm:


I hope u won't blame Buhari when a sachet of pure water becomes 50naira or when you have no light in your area for months since you support pipe vandals and economic saboteurs. Foolishly u forgot it's the poor masses like you and your fellow SS people that will suffer. Buhari and his fellow elites will never be poor till they leave this world. Keep encouraging madness